The likelihood that South Korea’s annual economic growth rate this year will rise to around 3.7% has increased significantly. As the third-quarter economic growth rate significantly exceeded the Bank of Korea’s expectations, an annual growth rate of 3.6% is possible even if growth stalls in the fourth quarter. This would be the highest growth rate in five years since the rebound following the shock of the coronavirus pandemic in 2021 (4.7%).
According to the Bank of Korea on the 27th, the third-quarter real gross domestic product (GDP) growth rate was 1.0%, surpassing the forecast from last August (0.3%) by 0.7 percentage points. This figure could raise the annual growth rate by 0.35 percentage points.
The Bank of Korea revised its annual growth rate forecast for this year upward from 2.6% to 3.3% in August last month. Simply reflecting the above-forecast third-quarter effect brings the figure to 3.65%. This is the backdrop for suggestions that it may be further revised upward to around 3.7% in the revised economic outlook scheduled for November.
Major overseas institutional investors have also raised their growth rate forecasts for the South Korean economy. According to the International Finance Center, as of the end of last month, the average annual growth rate forecast from eight overseas investment banks was 3.5%, up 0.2 percentage points from a month earlier. JPMorgan presented 4.0%, and Citi presented 3.8%. The OECD also revised its growth rate forecast upward to 3.7% last month.
Scenarios based on the fourth-quarter growth rate are also drawing attention. According to the Bank of Korea, the cumulative growth rate for the first three quarters of this year is 3.6% compared to the same period last year. Even if the fourth-quarter growth rate remains at 0% compared to the previous quarter, the annual growth rate will record 3.6%. If growth reaches around 0.5% in the fourth quarter, an annual growth rate of 3.7% is also possible.
The possibility of 4% annual growth is also arithmetically open. Lee Dong-won, Director of the Economic Statistics Division 2 at the Bank of Korea, explained, “If growth exceeds 1.4% in the fourth quarter, an annual growth rate of 4% is arithmetically possible.”
The growth momentum appears likely to continue into the fourth quarter. The Bank of Korea expects semiconductor exports to maintain a favorable trend through next year and assessed that capital investment is trending toward expansion for purposes such as supplying contracted volumes.
Government fiscal spending is also expected to boost fourth-quarter growth. This is because budgets whose execution was adjusted in the first half in preparation for a prolonged Middle East war are being executed in the second half. The Bank of Korea forecast that the execution of the annually planned budget will continue into the fourth quarter, acting positively on growth.
The growth outlook for next year is also bright. In August last month, the Bank of Korea projected next year’s economic growth rate at 2.9%. Director Lee expected that the increase in semiconductor export volume next year would be higher than this year due to the effect of expanded production of HBM (High Bandwidth Memory). However, he forecast that the rate of increase in semiconductor prices will slow compared to this year.
The variable going forward is private consumption. In the third quarter, consumption decreased due to temporary factors such as strikes in the automotive industry and stock market corrections, but it was assessed that passenger car consumption recovered significantly entering October. Cash dividends from semiconductor companies, performance bonuses paid in early next year, and expanded government transfer payments are also expected to support the recovery in consumption. Director Lee said, “Exports and investment appear likely to maintain strong performance,” adding, “The extent to which private consumption rebounds will be important.”
in ECONOMY
